The IPO Buzz: Cover Story

Do you want to know how an IPO will trade after it’s been priced? Look at the cover of its final prospectus. Compare the final pricing terms with those on the front page of the IPO’s last preliminary prospectus. For classic examples of how this works, look no further than the two IPOs priced last week.

One IPO ran up in the aftermarket. The other one tumbled. They were Intellia Therapeutics (NTLA) and Spring Bank Pharmaceuticals (SBPH).

Up the Ladder

Intellia Therapeutics, the gene editing company, was priced ABOVE its preliminary range. Its bankers offered 6 million shares at $18 each, INCREASED from 5 million shares at $16 to $18 each, according to its last preliminary prospectus. Intellia opened at $22 and closed at $22.10, UP $4 or 22.8 percent from its IPO price.

Down the Ladder

Spring Bank Pharmaceuticals, a clinical-stage biopharmaceutical company developing a novel class of antiviral therapeutics, was priced BELOW its preliminary range. Its banker offered 920,000 shares at $12 each, CUT from 1.14 million shares at $12 to $14 each, according to its last preliminary prospectus. In an earlier filing, Spring Bank had planned to offer 2.9 million shares at $13 to $15 each. Spring Bank opened at $11.28 and closed at $11.10, DOWN 90 cents or 7.5 percent from its IPO price.

A Decade’s Worth of Data

Both Intellia and Spring Bank followed historic patterns of IPO aftermarket performance.

From January 2006 through the first week of May 2016, a total of 1,563 IPOs were priced, according to the U.S. Securities and Exchange Commission. This excludes unit offerings, bank conversions, “best efforts” offerings, blank checks, closed-end funds, companies trading on the pink sheets moving up to the NASDAQ and foreign-traded securities making their debuts in the U.S. capital markets. The latter are public offerings because investors can buy the underlying shares on foreign exchanges before their U.S. pricing dates.

And now for a drum roll, please.

An analysis of this decade’s worth of data shows that the 1,563 IPOs scored an average opening-day gain of 15.05 percent. In this group, the performance rankings are:

  • There were 500 IPOs priced ABOVE range. They scored an average opening-day gain of 31.48 percent.
  • There were 574 IPOs priced BELOW range. They scored an average opening-day gain of 1.48 percent.

Note: There are no typos here. What you see is accurate:

  • An average opening-day gain of 31.48 percent for the 500 IPOs priced ABOVE range during this period, and
  • An average opening-day gain of only 1.48 percent for the 574 IPOs priced BELOW range during this span of slightly more than 10 years.

The reason for the discrepancies is ECON 101: supply versus demand. Great demand versus limited supply means higher prices. Limited demand versus oversupply leads to lower prices.

Conclusion: INCREASE a deal, double my order. CUT a deal, cancel my order.

Variety Show

Now let’s move on to this week’s calendar. It lists six names, with four new faces at the IPO window and two carryovers from last week. The roster reads like the credits of a variety show. The new faces are Acacia Communications (ACIA – proposed), SiteOne Landscape Supply (SITE – proposed), Turning Point Brands (TPB – proposed) and Viamet Pharmaceuticals (VMET – proposed). The carryovers are Oncobiologics (ONS – proposed) and Cancer Prevention Pharmaceuticals (CPP – proposed).

Acacia Communications, based in Maynard, Massachusetts, makes high-speed optical interconnection products for communications networks. Acacia’s customers include cloud infrastructure operators and content and communications service providers. Its products are designed to improve network performance and capacity as well as to cut costs.

Bankers plan to price 4.5 million shares at $21 to $23 each on Thursday evening, May 12, to trade on Friday morning, May 13.

SiteOne Landscape Supply, based in Roswell, Georgia, believes it is the largest and only national wholesale distributor of landscape supplies in the United States and Canada. The company offers a comprehensive selection of more than 100,000 SKUs, including irrigation supplies, fertilizer and control products (e.g., herbicides), landscape accessories, nursery goods, hardscapes (including pavers, natural stones and blocks), outdoor lighting and ice melt products through 477 locations in 44 states and five provinces.

Bankers plan to price 10 million shares at $20 to $22 each on Wednesday evening, May 11, to trade on Thursday morning, May 12.

Turning Point Brands, based in Louisville, Kentucky, is an independent provider of Other Tobacco Products (OTP) in the United States. Turning Point Brands believes it is the sixth-largest competitor in terms of total OTP consumer units shipped to retail. The company offers a range of OTP products, such as moist snuff, loose leaf chewing tobacco, premium cigarette papers, make-your-own cigar wraps and cigar smoking tobacco, cigars, liquid vapor products and tobacco vaporizer products. It does not sell cigarettes.

Bankers plan to price 5.4 million shares at $13 to $15 each on Tuesday evening, May 10, to trade on Wednesday morning, May 11.

Viamet Pharmaceuticals, based in Durham, North Carolina, is a biopharmaceutical company developing metal-binding therapeutics to treat fungal toenail infections, recurring vaginal yeast infections and other fungal diseases.

Bankers plan to price 5.7 million shares at $14 to $16 each on Wednesday evening, May 11, to trade on Thursday morning, May 12.

Looking into the week of May 16, 2016, the IPO calendar has one small-cap deal expecting to raise $22.2 million. But anything could happen on Monday morning, May 9, 2016, to shape the agenda for the third week of May.

Stay tuned.

Disclosure: Neither the author nor anyone else on the staff has a position in any stocks mentioned, nor do we trade or invest in IPOs. The author and staff do not issue advice, recommendations or opinion.